Time running out for Yankees to sign Japanese infielder Hiroyuki Nakajima

Christian Petersen/Getty ImagesThe Yankees would have to increase their budget to sign the likes of free agent pitcher Edwin Jackson.

NEW YORK — Time is running out for the Yankees to strike a deal with Japanese infielder Hiroyuki Nakajima.

Technically, Nakajima and the Yankees have until Friday at 5 p.m. to reach an agreement. But according to a person with knowledge of the situation, who requested anonymity because talks are ongoing, the deadline is much sooner. Not only would Nakajima have to agree to terms but he'd also have to pass a physical by Friday's deadline.

Meanwhile, the contract talks themselves seem to be slow. The Yankees seem to be holding firm on paying Nakajima like a backup infielder, which would be a major shift for Nakajima, a starting shortstop and team captain with the Seibu Lions.

“I don't see anything happening,” the person with knowledge said.

The Yankees were surprised to win negotiating rights with Nakajima, submitting a modest bid of just $2 million, which dampened the prospects of a deal from the start. The Yankees already have a utility man in Eduardo Nunez while maintaining an interest in veteran infielder Eric Chavez.

But the Yankees can't move on Chavez until negotiations with Nakajima are complete.

The Yankees will only pay the $2 million posting fee if Nakajima actually signs. If Nakajima doesn't sign, he will return to Japan for another season before being eligible to be posted once more.

Also, the Yankees likely won't be real players for free agent pitchers such as Edwin Jackson or Hiroki Kuroda unless managing partner Hal Steinbrenner expands the team's budget, according to the person with knowledge. Counting expected salary raises through arbitration, the Yankees are sitting just above the $200 million mark, though they are not likely to stray much higher than $210 million.

Signing either Jackson or Kuroda would push the Yankees past that number.

The Cubs are reportedly shopping pitcher Matt Garza, who could be acquired for a package of prospects. However, the Yankees have been hesitant to trade prospects.

Under the terms of the new collective bargaining agreement, the Yankees could cut down their revenue-sharing burden if they are able to trim payroll down to $189 million by 2014. The team is more likely to get under the salary threshold if they retain their prospects, who would make near the minimum salary over their first three seasons in the majors.

Such salary savings represents a major value for the Yankees, who also face the challenge of getting under the luxury cap threshold while also carrying the burdens of sizable long-term contracts to the likes of Alex Rodriguez, CC Sabathia and Mark Teixeira.